Question 1

Insurance companies provide higher insurance premiums to plans with lower deductibles as a way of:

Accepted Answer

A)  screening between types of drivers. 
B)  avoiding moral hazard. 
C)  reducing the lemons problem. 
D)  optimizing information acquisition. 
A)  screening between types of drivers. 
B)  avoiding moral hazard. 
C)  reducing the lemons problem. 
D)  optimizing information acquisition.

Question 2

Moral hazard is:

Accepted Answer

A)  when people engage in behavior that is considered highly desirable by the person who bears the cost of the behavior. 
B)  when buyers and sellers have different information about the quality of a good or the riskiness of a situation. 
C)  when buyers and sellers with the same information about the quality of a good or the riskiness of a situation agree to a somewhat shady deal. 
D)  the tendency for people to behave in a riskier way or provide less effort when they do not face the full consequences of their actions. 
A)  when people engage in behavior that is considered highly desirable by the person who bears the cost of the behavior. 
B)  when buyers and sellers have different information about the quality of a good or the riskiness of a situation. 
C)  when buyers and sellers with the same information about the quality of a good or the riskiness of a situation agree to a somewhat shady deal. 
D)  the tendency for people to behave in a riskier way or provide less effort when they do not face the full consequences of their actions.

Question 3

The presence of adverse selection in a market causes:

Accepted Answer

A)  some transactions to fail to take place. 
B)  a deadweight loss. 
C)  market failure. 
D)  All of these statements are true. 
A)  some transactions to fail to take place. 
B)  a deadweight loss. 
C)  market failure. 
D)  All of these statements are true.

Question 4

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

Accepted Answer

A)  statistical discrimination. 
B)  screening. 
C)  disclosure laws. 
D)  building a reputation. 
A)  statistical discrimination. 
B)  screening. 
C)  disclosure laws. 
D)  building a reputation.

Question 5

When people are fully informed about the choices that they and other relevant economic actors face,we say they:

Accepted Answer

A)  have complete information. 
B)  will always try to hide that information to gain advantage. 
C)  will always be willing to go through with the transaction. 
D)  have relevant information. 
A)  have complete information. 
B)  will always try to hide that information to gain advantage. 
C)  will always be willing to go through with the transaction. 
D)  have relevant information.

Question 6

A landlord requiring potential tenants to provide a rental history is an example of:

Accepted Answer

A)  screening. 
B)  signaling. 
C)  statistical discrimination. 
D)  building a reputation. 
A)  screening. 
B)  signaling. 
C)  statistical discrimination. 
D)  building a reputation.

Question 7

One way to avoid the principal-agent problem would be to have:

Accepted Answer

A)  the employee constantly monitor the employer's activities. 
B)  the employer constantly monitor the employee's efforts. 
C)  the employer share all management choices with employees before making decisions. 
D)  the employee sign a waiver of release. 
A)  the employee constantly monitor the employer's activities. 
B)  the employer constantly monitor the employee's efforts. 
C)  the employer share all management choices with employees before making decisions. 
D)  the employee sign a waiver of release.

Question 8

When buying a used car from a dealer,showing up in cheap clothing and ungroomed is an example of:

Accepted Answer

A)  screening. 
B)  signaling. 
C)  statistical discrimination. 
D)  building a reputation. 
A)  screening. 
B)  signaling. 
C)  statistical discrimination. 
D)  building a reputation.

Question 9

The "lemons" problem is used to explain the concept of:

Accepted Answer

A)  complete information. 
B)  adverse selection. 
C)  moral hazard. 
D)  produce markets. 
A)  complete information. 
B)  adverse selection. 
C)  moral hazard. 
D)  produce markets.

Question 10

Reading a Consumer Reports review of a vacuum cleaner before buying is the same way of dealing with information asymmetry as:

Accepted Answer

A)  an employer requiring a drug test. 
B)  an insurance company offering different deductible-level plans. 
C)  a buyer choosing a used car from a brand dealership. 
D)  a college charging a high tuition relative to other schools. 
A)  an employer requiring a drug test. 
B)  an insurance company offering different deductible-level plans. 
C)  a buyer choosing a used car from a brand dealership. 
D)  a college charging a high tuition relative to other schools.

Question 11

An employer that only employs applicants who have college degrees is an example of

Accepted Answer

A)  proofing. 
B)  moral hazard. 
C)  screening. 
D)  mandating that information be shared. 
A)  proofing. 
B)  moral hazard. 
C)  screening. 
D)  mandating that information be shared.

Question 12

Government mandating that every driver have a minimum amount of car insurance addresses the problem of:

Accepted Answer

A)  moral hazard. 
B)  illegal screening. 
C)  adverse selection. 
D)  statistical discrimination. 
A)  moral hazard. 
B)  illegal screening. 
C)  adverse selection. 
D)  statistical discrimination.

Question 13

Information asymmetry means: 0-

Accepted Answer

A)  people have good enough information to make acceptable choices, but not complete information. 
B)  complete information is not possible to obtain. 
C)  the lack of information in a market prevents it from existing. 
D)  a situation in which one person knows more than another. 
A)  people have good enough information to make acceptable choices, but not complete information. 
B)  complete information is not possible to obtain. 
C)  the lack of information in a market prevents it from existing. 
D)  a situation in which one person knows more than another.

Question 14

In the early 2000s,the government passed laws requiring banks and mortgage brokers to disclose the terms of home loans.This action by the government was an attempt to:

Accepted Answer

A)  solve the information asymmetry problem, but did not work as intended. 
B)  solve the information asymmetry problem and led to an improvement in the housing market. 
C)  screen out risky or shady banks and mortgage brokers. 
D)  signal to consumers that the government cared about the value of their homes. 
A)  solve the information asymmetry problem, but did not work as intended. 
B)  solve the information asymmetry problem and led to an improvement in the housing market. 
C)  screen out risky or shady banks and mortgage brokers. 
D)  signal to consumers that the government cared about the value of their homes.

Question 15

The government can help solve the information asymmetry problem by:

Accepted Answer

A)  making it illegal to complete a transaction without complete information. 
B)  providing the missing information to the less-informed party. 
C)  requiring the more informed party to not use the imbalance to their advantage. 
D)  All of these statements are true. 
A)  making it illegal to complete a transaction without complete information. 
B)  providing the missing information to the less-informed party. 
C)  requiring the more informed party to not use the imbalance to their advantage. 
D)  All of these statements are true.

Question 16

Because of the lack of buyer's information about a perfectly functioning used car:

Accepted Answer

A)  the buyer will pay less than what it's worth because of the chance that it will be a lemon. 
B)  sellers of perfectly functioning used cars will be more likely to enter the market. 
C)  the market will eventually become saturated with high quality cars. 
D)  All of these statements are true. 
A)  the buyer will pay less than what it's worth because of the chance that it will be a lemon. 
B)  sellers of perfectly functioning used cars will be more likely to enter the market. 
C)  the market will eventually become saturated with high quality cars. 
D)  All of these statements are true.

Question 17

A motorist who chooses high-deductible versus low-deductible car insurance is signaling that he is:

Accepted Answer

A)  a safe driver. 
B)  a reckless driver. 
C)  likely to be a low income earner. 
D)  likely to not pay. 
A)  a safe driver. 
B)  a reckless driver. 
C)  likely to be a low income earner. 
D)  likely to not pay.

Question 18

Information asymmetry is a problem when:

Accepted Answer

A)  a buyer and seller have aligned incentives. 
B)  a buyer and seller have opposing incentives. 
C)  a market is highly efficient. 
D)  a market is highly inefficient. 
A)  a buyer and seller have aligned incentives. 
B)  a buyer and seller have opposing incentives. 
C)  a market is highly efficient. 
D)  a market is highly inefficient.

Question 19

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

Accepted Answer

A)  statistical discrimination. 
B)  signaling. 
C)  mandating that information be shared. 
D)  All of these are ways the government deals with information asymmetry. 
A)  statistical discrimination. 
B)  signaling. 
C)  mandating that information be shared. 
D)  All of these are ways the government deals with information asymmetry.

Question 20

Statistical discrimination is not always:

Accepted Answer

A)  legal. 
B)  ethical. 
C)  useful. 
D)  All of these statements are true. 
A)  legal. 
B)  ethical. 
C)  useful. 
D)  All of these statements are true.

Exam 10: Information

Insurance companies provide higher insurance premiums to plans with lower deductibles as a way of:

Moral hazard is:

The presence of adverse selection in a market causes:

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

When people are fully informed about the choices that they and other relevant economic actors face,we say they:

A landlord requiring potential tenants to provide a rental history is an example of:

One way to avoid the principal-agent problem would be to have:

When buying a used car from a dealer,showing up in cheap clothing and ungroomed is an example of:

The "lemons" problem is used to explain the concept of:

Reading a Consumer Reports review of a vacuum cleaner before buying is the same way of dealing with information asymmetry as:

An employer that only employs applicants who have college degrees is an example of

Government mandating that every driver have a minimum amount of car insurance addresses the problem of:

Information asymmetry means: 0-

In the early 2000s,the government passed laws requiring banks and mortgage brokers to disclose the terms of home loans.This action by the government was an attempt to:

The government can help solve the information asymmetry problem by:

Because of the lack of buyer's information about a perfectly functioning used car:

A motorist who chooses high-deductible versus low-deductible car insurance is signaling that he is:

Information asymmetry is a problem when:

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

Statistical discrimination is not always:

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